5 THINGS

ABOUT

HEALTH COMMODITY
SUPPLY CHAIN MANAGEMENT
16 May 2016

Disclaimer: The views expressed in this paper/presentation are the views of the author and do not necessarily reflect the views or
policies of the Asian Development Bank (ADB), or its Board of Governors, or the governments they represent. ADB does not
guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequence of their use.
Terminologies used may not necessarily be consistent with ADB official terms.

#1

Effective
commodity supply
chains are crucial
for health security

More lives saved and improved quality of life

Effective health supply chains improve
efficiencies and service quality
Improves

cost
efficiency
and
effectiveness

•Reduces overstock,
waste, expiry,
damage, pilferage,
and inefficiency
•Protects program
investments;
•Accelerates cost
recovery

Increases
program
impact

• Builds trust in
the health
system
• Increased
health
service use

Enhances
quality of
care

•Improved
service
delivery
•Motivates staff

Health commodity management
capacity needs to keep up with Asia’s
expanding pharmaceutical market
UHC: Expansion of access to
health care
Indonesia: 155M covered

60%

Expanding pharmaceutical market
13% annual growth rate
$214B
(2010)

$386B
(2017)

Increased profitability of private
healthcare companies
31% annual growth rate
USD5.4M
(2005)
USD27.6M
(2011)
Average revenues

Diabetes

51M
(China)

43M
(India)

Expanding prevalence of noncommunicable diseases (NCDs)
Vulnerability to pandemics and
natural disasters
• SARS, avian flu, earthquakes, etc.

Supply Chain Strengthening Supports
Sustainable Development Goals

SDG 3.8: Achieve universal health coverage,
including financial risk protection, access to
quality essential health-care services and
access to safe, effective, quality and affordable
essential medicines and vaccines for all

#2

Health supply chains
should be
customer-centered

Logistics Cycle
Serving
Customers

Product
Selection
Warehousing,
Storage and
Distribution

Quantification
Procurement

Source: USAID | DELIVER

• Logistics systems begin and end
with the customer / patient
Time

Quality

Cost

Product

6 Logistics “Rights”

Quantity

Place

#3

Information
is the heart of a
health commodity
supply chain

Information
Management

Management & Supervision
Information Management
Financial Management
Human Resources

Batch and expiry information

Patient Information
Product lead times

Inventory levels & distribution

Price and market information
Commodity budgets

Management & System
Resource Allocation
Decision-Making

#4

Health supply
chains are
fragmented

Private
supply chain

Manufacturer

Regional Distributer

Public
supply chain
MoH

Donors

MOH
Procurement
Agent

Donor
Procurement
Agents

Central Level

Wholesaler or Pharmacy

Provincial or District

End user

End user

Essential
medicine

Funding
source

TB

Reproductive
Health

HIV

Vaccines

MoH
Donor X

Donor Y

Procurement
agent
NGOs

Central Level
Provincial or District

End user

MOH
Procurement
Agent

#5

Coordination and
planning is required
to achieve efficiency
and effectiveness

Medicines & Health Commodities

Finances

Information

= Manufacturing lead
times
= National drug strategies
and regulatory frameworks
= Procurement and
funding cycles
= Procurement policies
= Decentralization or
other health reform
= contract monitoring &
payment
= Quality Control and
Monitoring

= Inventory management
and reporting
= Rational Drug Use
= System performance

Indonesia after Tsunami in 2004

4,000 pounds of pharmaceutical donations
• 60% of products not on essential medicines list
• 70% labeled in a foreign language

• 25% had an inadequate expiry date
661 tons of medicines had to be destroyed at the
cost of EUR2.4M

ADB opportunities

ADB Investments in Supply Chain
Largely commodity procurements – not dedicated system strengthening
ADB Project

Procurement Related Funding

CDC2
Total Budget: $54M

Procurement of laboratory equipment
Cambodia: $2.5M
Lao PDR: $1.85M
Vietnam $10.88M

CDC2
Additional Financing
Total Budget: $9.5M

Procurement of malaria program equipment and
consumables (rapid diagnostic tests, artemisinin-based
combination therapies, long-lasting insecticide-treated
mosquito nets)

Lao Policy
Health Sector
Policy Loan
Total Budget: $20M

USD 548,000 for equipment and vehicles

R-CDTA
Total Budget: $4.5M

● Purchase the minor laboratory equipment, rapid tests
(January 2016 – March 2017).
● $75,000 for microscopes
● $186,000 for other laboratory equipment

GMS Health Security
Total Budget: $114M

● Assessment of laboratory equipment
● $9,000 budget for the purchase of laboratory equipment

ADB Supply Chain Investment
Opportunities
Largely commodity procurements – not dedicated system strengthening

Infrastructure
Development

•CMS Infrastructure at the central or regional levels
•Expanded storage facilities (hospitals, etc.)
•Fleet refurbishment

Information
Management

•Integrated LMIS systems
•Automated national drug quality registries

Management
Strengthening

•WHO MQAs accreditation
•Warehouse accreditation (ISO Organization)
•Public procurement reform

Integrate into ADB health security programming

References
1. “Asia Rising: Health Care.” A report from the Economist
Intelligence Unit, 2014
2. “Logistics Management Units: What, Why and How of
the Central Coordination of Supply Chain
Management.” USAID | DELIVER, April 2010
3. “Managing Access to Medicines an Health
Technologies.” Management Sciences for Health. 2012.
4. “Rapid Analytical Review and Assessment of Health
Systems Opportunities and Gaps in Indonesia,” Health
Finance and Governance Project, USAID 2015 DRAFT
5. “The Logistics Handbook: A Practical Guide for the
Supply Chain Management of Health Commodities.”
USAID|DELIVER, 2011

ANNEX 1. Logistics Cycle

Logistics Cycle
Policy
Environment

Serving
Customers

Warehousing,
Storage and
Distribution

Product
Selection

Quantification
& Procurement

Policy
Environment

Source: USAID | DELIVER

Logistics Cycle – Serving Customers
Policy
Environment

① Serving
Customers

Management &
Warehousing,
Supervision
Storage and
Information Management
• Logistics system begins
end with
Financialand
Management
Distribution
Human Resources
customer

Product
the Selection

• 6 Logistics “Rights”: Product, Quantity, Place,
Time, Quality and Cost
Policy

Quantification
& Procurement

Environment

Logistics Cycle – Commodity Selection
Policy
Environment
= List of common health problems

Serving

= Choices of standard
Customers
medicines and non-drug
treatments
Management &

Supervision
Warehousing,
= Drug Therapeutic
Information Management
Committee Financial Management
Storage and
Distribution
= National DrugHuman
Policy Resources

= National Treatment
Guidelines

Quantification
& Procurement

= Essential Medicines List (EML)

② Commodity
Selection

Policy
Environment

Logistics Cycle - Quantification
Policy
Environment

Serving

= Calculate product demand

Customers

= Data accuracy?

= Consumption-based

Management &
Supervision
=
Morbidity
based
method
Warehousing,
Information Management
Financial Management
Storage and
Human Resources
Distribution


Quantification
& Procurement

= Partner
Coordination

Product
Selection

Policy
Environment

Logistics Cycle - Procurement
Policy
= Environment
Procurement
Planning

Serving = Transparent vendor
Customers

= Alignment of
procurement and
funding cycles

Warehousing,
= Accurate
Storage
and
specifications
Distribution

selection

= supplier performance
monitoring

Management &
Supervision
= contract monitoring
Information Management Product
& payment
Financial Management Selection
Human Resources


Quantification
& Procurement

Policy
Environment

Logistics Cycle – Warehousing, Storage
& Distribution
Policy
Environment

Serving = Customs clearing
Customers
= Inventory control


Warehousing,
Storage and
Distribution

Management &
Supervision
= Distribution
planning
Product
Selection
Information Management
Financial Management
Human Resources

= Product put-away, picking
and packing
Policy
Quantification &
Environment
= Product security & worker
Procurement
safety
= Distribution

Logistics Cycle – Policy Environment
⑤ Policy
Environment

Serving
Customers

Management &
Warehousing,
Product
= Public procurementSupervision
Storage
and
= Quality testing
Information Management
policies
Selection
Financial Management
Distribution
Human Resources= Health worker tasks
= National strategies

= Decentralization or
Policy
reform
Quantificationother healthEnvironment

= Treatment protocols

& Procurement

ANNEX 2. Supply Chain
Strengthening Examples

Aggregate Orders to Achieve Cost
Savings – Pooled procurement
• PEPFAR’s SCMS project
• USD2.5 billion in medicine and health
commodity procurements from 2005 – 2015
(65 countries)
• Indefinite quantity contracts (IQCs) and
blanket purchase agreements (BPAs)
• Generic procurements of ARVs increased
from 9.17% (2005) to 76% (2008) with an
estimated total savings of USD323M *

*Annual ARV expenditures USD116M (2005) to USD202M (2008)

Strengthen Central Medical Stores (CMS)
to strengthen public system
• Pharmaceutical or medical supply
warehouse for the public sector
• Often the national procurement agent
• Government main client
• Distribute to regional or provincial stores
• Implement various outsourcing models –
3PL providers
• Drug quality quarantine point
• Increasing trend towards independence
from MOH

Nepal: Introduction of “Pull” (Requisition)
Logistics System reduces stock-outs
• 1994: 40% commodity stock-out rate under
push” system
• 2004 – 2010: Transitioned to a “pull” or ordering
systems at all 75 districts
• 2012:
o Reduced stock outs of family planning
products to 2%
o Improved inventory reporting by facilities from
88% to 96%

Bangladesh: Coordinate supply chain
through Logistics and Supply
Management Units
• Based at the
Directorate of Family
Planning and central
and Regional
warehouses
• Over 280 staff
• Oversee the national
quantification,
forecasting and
procurement




planning process
Manage LMIS
Identify needs and
gaps
Distribution planning
Manage international
procurements for FP
and RH commodities